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Estimating Tax Capacity and Examining Its Determinants in Iran’s Manufacturing Industries Using a Stochastic Frontier Approach
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Fatemeh Karampour goruhi1   , Ahmad Sadraei Javaheri *2 , Ali Hussein Samadi1 , Ruhollah Shahnazi1 |
1- Department of Economics, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran
2- Department of Economics, Faculty of Economics, Management and Social Sciences, Shiraz University, Shiraz, Iran , sadraei@shirazu.ac.ir |
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Abstract: (8 Views) |
Potential tax capacity represents the maximum revenue collectible under prevailing economic and institutional conditions, serving as a critical benchmark for fiscal policy. This study estimates the potential tax capacity of Iran’s manufacturing sector and identifies its determinants using a stochastic frontier approach applied to two-digit ISIC panel data from 2002 to 2022.
The findings indicate that across all examined industries, potential capacity consistently exceeds actual tax collections, although the realization rate is highly heterogeneous. Specifically, industries under ISIC codes 23, 21, 20, 11, and 24 have realized approximately 78% of their potential, whereas codes 19, 29, 31, 13, 18, and 12 exhibit the lowest realization levels. This indicates substantial unutilized fiscal potential within the existing economic framework. Furthermore, empirical results demonstrate that bank credit, control of corruption, and government effectiveness exert a positive and significant influence on tax capacity. In contrast, inflation and trade openness negatively affect the tax capacity frontier. Overall, the study suggests that reinforcing structural and institutional foundations is vital for optimizing tax revenue mobilization within the manufacturing sector. These insights are particularly relevant for fiscal authorities seeking to align industrial performance with sustainable revenue streams.
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Article number: 7 |
| Keywords: Potential tax capacity, Tax capacity determinants, ISIC industries, Stochastic frontier approach |
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Full-Text [PDF 708 kb]
(5 Downloads)
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Article type: Research |
Subject:
General
Received: 2026/04/30 | Accepted: 2026/08/4 | Published: 2026/11/11
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